Good day, everyone, and welcome to this Microchip Technology Q4 and FY2007 financial results conference call. As a reminder today's call is being recorded. At this time, I would like to turn the call over to Microchip's Chief Financial Officer, Mr. Gordon Parnell. Please go ahead, sir.

Thank you very much. Good afternoon, everyone. During the course of this conference call we will be making projections and other forward-looking statements regarding future events or the future financial performance of the company. We wish to caution you that such statements are predictions and that actual events or results may differ materially. We refer you to our press release of today as well as our 10-K for the fiscal year ended March 31st, 2006, and our 8-K current reports that we have filed with the SEC that identify important risk factors that may impact Microchip's business and results of operations. In attendance with me today are Steve Sanghi, Microchip's President and CEO, and Ganesh Moorthy, Executive Vice President. I will comment on our Q4 and full fiscal year performance, reviewing geographic data and discussing balance sheet and cash information, and Ganesh and Steve will then give their comments on the results, outline our guidance for the June quarter, and update other pertinent matters regarding our business. We will then all be available to respond to specific investor and analyst questions after the comments. To facilitate the review of the information this afternoon, we will be using some PowerPoint slides. You should already have access to those slides. I would also suggest that having the press release available will enhance your understanding of the information we’ll be sharing today. With that, let’s move on to slide two. Our net sales for the March quarter were $258.2 million. They were up 2.9% from net sales of $251 million in the immediately preceding quarter and up approximately 4.5% from net sales of $247.2 million in the prior year’s Q4. Next I would like to comment on our earnings for the quarter, so moving to slide three. In the detail in this slide, we are providing GAAP and non-GAAP information. I want to focus on the non-GAAP initially, excluding the effects of share based compensation and the tax benefit related to a tax settlement as indicated in the press release. Gross margins were a record 60.52% for the March quarter, up 24bps from the December levels of 60.28%. With this result, we mark the bottom of our gross margins in this cycle in December, which were only off our previous highs by 17bps. Opex for the March quarter were 24.52%, down 21bps from opex in the December quarter. R&D costs increased $600,000 in the March quarter compared to the previous period, and SG&A costs increased by $700,000 QoverQ. Operating income for the period was $93 million, or 36% of sales, an improvement of 45bps from the December period. For the purposes of the non-GAAP presentation, a tax rate of 24% was used, that tax rate being in line with the prior guidance we had given the street. Non-GAAP net income for the March quarter was $81.3 million or $0.37 per diluted share, an increase of 3.3% from non-GAAP net income of $78.7 million or $0.36 per diluted share in the immediately preceding quarter and an increase of 7.6% from GAAP net income of $75.6 million or $0.35 per share in the prior year’s Q4. With that, let’s move to slide four. Here we’re looking at GAAP information. The operating performance on a GAAP basis showed some very similar trends to that that I have indicated. Our gross margins, opex and operating income all showed improvements from the December quarter. Operating income increased by $3.8 million from comparable measurements in the December period. During the March quarter, we completed the process related to a tax settlement. This settlement created benefit to the P&L during the March period of $52.2 million or $0.23 per diluted share. The closure of this matter has allowed us to take a fresh look at our effective tax rate on a go forward basis, and we are guiding to 20% effective tax rate for FY2008. GAAP net income for March was $127.7 million or $0.57 per diluted share inclusive of all shared-based compensation expenses and the effect of the tax settlement. The impact of earnings related to the adoption of share-based compensation in the March quarter was approximately 7.8%, which was in line with previous periods of this fiscal year. Moving to slide five, looking at on an annual basis, net sales for the fiscal year ended March 31st, 2007 were record levels: $1,039.7 billion, an increase of 12% from sales of $927.9 million in the previous fiscal year. This marks the first fiscal year that Microchip has achieved more than $1 billion in net sales. GAAP net income for the fiscal year was a record $357 million, an increase of 47% from FY2006 or $1.26 per diluted share. Moving onto slide six and looking at the comparable performance of 2007 to FY2006, I would like to focus on non-GAAP results. Our record gross margins for FY2007 were 60.4%. This was an increase of 103bps over the results of FY2006. Opex was essentially unchanged as a percent of sales in FY2007 versus FY2006, with operating income for FY2007 of over $375 million, or 36.1% of sales. Net income for FY2007 on a GAAP basis was $325.6 million or $1.48 per diluted share. This represented an increase of over 19% YoverY. Moving onto geographic sales on slide seven: in the March quarter, Europe grew approximately 19% sequentially. Americas were essentially flat and Asia was down approximately 6% sequentially. The March quarter has traditionally been a very strong quarter for Europe and that followed that trend. Asian results are colored obviously by the Chinese lunar new year in that particular region. Asia represents approximately 40% of revenues and Europe approximately 33% of revenues and America is the balance at 27% as shown in the pie chart. This is all based on the quarter ended March 2007 ending data. Moving to slide eight, looking at cash balances, as at March 31st, Microchip’s cash and total investment position was approximately $1.3 billion with no debt on the balance sheet. During the quarter, Microchip generated net cash flow from the business of approximately $100 million prior to dividend payments. Payments related to our cash dividend of $0.265 was $57 million and we also reduced our short term borrowings by $29.5 million. In the fiscal year, we generated a record $470 million in cash flow prior to dividend payments for the year, which was $208 million. Looking at dividends on slide nine, the dividend declared today of $0.28 per share was an increase of approximately 5.7% sequentially and an increase of 30.2% over the same quarter in FY2006. Dividend payments in FY2007 as I indicated represented $208 million and the dividend payment that will be made in the June quarter based on the declared dividend will be at an annual run rate of approximately $240 million. Moving on to some of the balance sheet information on slide 10, initially looking at receivables, receivables increased by 3.7% or approximately $4.4 million during the March quarter. Collection performance was excellent during the quarter, particularly factoring in the geographical impacts of the lunar new year in Asia and the traditionally longer terms for our business in Europe. Receivable balances are in excellent shape with minimal amounts that are significantly beyond established payment terms. Moving to inventory information on slide 11, here measuring inventories without the effects of share-based compensation so that we still maintain a comparative basis. Inventory on our balance sheet declined by approximately $800,000 in the March quarter. It now represents 105 days of inventories, a decrease of three days from December. We are now in the middle of the range for inventories that have supported our business and we’re very comfortable with where we are. Our lead times continue to be short, with the majority of our products being available within three to five weeks. On slide 12, we are looking at inventories at our distributors, which continue to decline. It now represents 1.8 months of sell through, down from 1.9 months as at the end of the December quarter. This is the lowest level we have seen historically and relates to working capital management, not sales activity in the channel. Distributor sell through, in fact, increased by 5.7% QoverQ. When combined with the inventory on our balance sheet, the overall inventory in support of our business is near the lowest levels we have experienced for almost five years. On slide 13, depreciation expense for the March quarter is shown at $28.1 million versus $26.9 million for the same quarter last fiscal year and $29.1 million in the December quarter. Depreciation for FY2007 was approximately $114 million. Capital spending was approximately $9 million for the March quarter and approximately $60 million for the full fiscal year. Some level of projected FY2007 capital ended up being pushed into FY2008 due to the business conditions. Our capital expenditure forecast for FY2008 is now $80 million based on our outlook for this fiscal year. Depreciation is expected to be approximately $105 million for the fiscal year. I will now ask Ganesh and Steve to discuss the performance of our business, our guidance for the June quarter and update other business matters. Ganesh?

Thank you, Gordon, and good afternoon, everyone. I will now comment on the individual product lines, after which Steve will walk you through our guidance for the next quarter. Please move to slide number 14. Starting with microcontrollers, our microcontroller business was up 4% sequentially and up 6.5% over the year-ago quarter. FY2007 microcontroller revenue hit an all time record at $834.2 million. Our flash microcontroller business was up 7% sequentially, achieving a new quarterly revenue record and was up 21.3% over the year ago quarter. Flash microcontrollers now represent over two thirds of our microcontroller business. Additionally we expect to ship our two billionth flash microcontroller later this quarter, and we believe this is – by a significant margin – the largest number of flash microcontrollers shipped by anyone. Looking at one of our leading indicators, we shipped 24,847 new development tools last quarter, which was another all-time record. The record shipment of development tools demonstrates continued strong design win activity and acceptance of our products. Let’s move to slide number 15. Earlier this month, Dataquest published their 2006 report for 8-bit microcontroller market share. Dataquest’s report confirms that Microchip became the number one supplier of 8-bit microcontrollers in dollar terms for the first time. You’ll recall that we had already achieved the number one position in units back in 2002. Moving to slide number 16, a little more color on the Dataquest information: according to Dataquest, in 2006 Microchip with a growth of 15% was the number one supplier, surpassing Freescale who declined by 12% and Renesas who grew by 4%. NEC, who held the number four position, declined by 12% and ST Micro who held the number five position grew by only 2%. Also for the Dataquest report, Microchip is now not only the number one 8-bit microcontroller supplier, but is also 22% larger than Freescale at the number two position. This results exemplify the strength of Microchip’s differentiated business model in producing sustained, industry-leading results. Moving to slide number 17, on 16-bit microcontrollers, our business is up 41% sequentially and up 135% over the year-ago quarter. Our 16-bit design win momentum and development tool sales remain very strong. The number of volume 16-bit customers grew to 735 in the March quarter from 638 in the December quarter. In terms of 16-bit customers of all volumes, that number is in the several thousands. We shipped 3,278 16-bit-specific development tools in the March quarter, bringing the total shipped to date to 23,427. We now have 92 16-bit microcontrollers in production. Moving to slide number 18, this slid compares the growth of our 16 bit revenue with the high end 8-bit microcontroller product line called PIC18. PIC18 has been a very successful product line for us and was introduced four years prior to the introduction of the 16-bit product line. The graph shows that the growth of 16-bit microcontrollers and revenue is equivalent to the growth of the high-end 8-bit, despite a very demanding comparison including longer design times associated with our 16-bit products. On slide number 19, we have the analog product performance. Analog products were down 3.3% sequentially, however FY2007 analog products revenue was 24% higher than FY2006 and hit an all-time record of $82.7 million. While the market for analog products has been challenging with the majority of competitors reporting significant sequential declines in the March quarter, we appear to have the best reported performance in analog among our competitors and we believe we’re continuing to gain market share. The number of customers buying our analog products grew to 12,147, from 11,687 in the previous quarter. On memory products, the net sales were down 0.7% sequentially. Our pricing declined moderately QoverQ. With that, let me now pass it to Steve for some general comments and our guidance for the June quarter. Please move to slide 20. Steve?

Thanks, Ganesh. Today I would like to first reflect on the results of the March quarter. Then I will discuss the guidance for the June 2007 quarter. All of the figures in our comments will be prior to share-based compensation expense in order to do a fair comparison to the prior quarters. The figures with share-based compensation expense are all available in the press release. We beat our guidance for the quarter despite very challenging industry conditions and a broad-based inventory correction. Our sequential growth last quarter was higher than all of the semiconductor companies that have announced results so far and most companies have sequential declines. Our net sales were up 2.9% sequentially. We achieved another record gross margin of 60.5%, thus we demonstrated a peak to trough gross margin decline of only 17bps in the cycle and then we achieved another record gross margin just one quarter after the trough. We also achieved an operating profit of 36%. This quarter also marks the 66th consecutive quarter that we have been profitable, a testament to the resilience of Microchip’s business model over many business cycles. We shipped a record number of new development tools, indicating strong acceptance of our products and strong design win activity. The record shipment of development tools is also an indicator of the success of Microchip’s demand creation initiative. In the last several years, we have increasingly taken more direct control of demand creation. We have added Microchip direct resources as well as regional distributors, catalogue houses, design houses and manufacturers’ representatives. All in all, this retuning of demand creation has been very successful. As one evidence of the success of our demand creation program, is that our global distribution net sales were up 9.3% sequentially. It clearly shows that our demand creations efforts are being successful and the customers are then buying the products from global distributors. In addition, the relationship with Arrow is normalizing. The Dataquest report that Ganesh highlighted clearly shows the evidence that the difference in our performance versus the industry’s has widened, further validating our demand creation strategy. Another point I would like to note is that Microchip proved once again that the book to bill ratio of the prior quarter does not correlate to the revenue for the following quarter. In the December quarter, our book to bill ratio was 0.97 and some investors questioned our flat guidance while most competitors were guiding down significantly. We in fact achieved a growth of 2.9%, reaffirming that the book to bill ratio does not predict the next quarter’s revenue. Having said that, the book to bill ratio for the March quarter was 1.01. Move onto slide number 21 – now the guidance for the June 2007 quarter. As we looked at the June quarter, we took several factors into account. We looked at our own bookings and business activity in various product lines, our starting backlog for the June quarter was slightly higher than that for the March quarter. We also looked at the inventory situation. The inventory at our distributors hit another all-time low of 1.8 months. The historical range has been 1.9 months to 3.3 months. As we have talked before, we believe that the bulk of inventory correction was over in the December quarter and the rest of it completed in the March quarter. Our own inventory continues to be in very good shape. Our internal inventory ended at 105 days, down three days from last quarter and significantly lower than our guidance of 111 days. We also looked at lead times. Our lead times remain in the three to five weeks range with most products available off the shelf. Next slide please? The June quarter is also a seasonably strong quarter for Microchip, therefore taking all these factors into account, we expect our June quarter net sales to be up about 5% sequentially. Our internal inventory is right in the middle of our historical days of inventory and we are heading into another up cycle. Therefore we have started to increase the wafer starts in fab 4 in Gresham. We are also increasing production rates in our assembly and test facility in Thailand. We have also increased our capex forecast for FY2008 to $80 million from $60 million actual for FY2007. Non-GAAP gross margins for the June quarter should be up by about 25bps to about 60.75%. Non-GAAP operating expenses are expected to be about 25%. The effective tax rate is expected to be about 20%. Non-GAAP EPS are expected to be about $0.40. EPS with share-based compensation expense should be about $0.37. We expect to build approximately $110 million of net cash flow before payment of $61 million of dividends just announced today and we look forward to sharing this cash with investors with another increase in dividend in the next quarter. Let’s move onto our final slide, number 23. So in this I will summarize a few highlights of the business. We have achieved continued strong growth through market share gains in the 8-bit microcontrollers. Dataquest reported that we became number one in 8-bit market share in revenue in 2006. We have gained a traction in 16-bit microcontrollers, demonstrating strong sequential and YoverY growth. In our analog business, we outgrew all other major analog competitors with 24% growth in FY2007 over FY2006. In our gross margin performance, we demonstrated a mere 17bps peak to trough decline during the industry cycle. We have achieved record gross margins again and we have started the climb towards the long-term guidance of 62% gross margin. We have shown strong growth through our unique demand creation model. The revenue coming from our distributors has continued to increase, reflecting that our demand creation efforts are channel agnostic. We have boldly headed into another up cycle. Based on the results I have just summarized, we find ourselves uniquely positioned to continue to gain market share in all of our strategic product lines and outgrow the competition. With that, operator, will you please poll for questions?

Operator instructions. We’ll go ahead and take our first question from Tore Svanberg, Piper Jaffray.

My first question is on the channel inventories. You said they’re now at 1.8. The historical range is 1.9 to 3.2. Going forward, what do you think the new historical range will be?

Our feeling is that distribution is continuously setting into a mode of higher returns on their own inventory, getting more cycles of inventory. I don’t think it’s ever going back to the high point of 3.3 before. Will it always stay 1.8 or could it go closer to 2 or even slightly higher? That is certainly possible but the whole average inventory distribution will carry and will be much lower on the average than ever before.

My follow up question is can you comment a little bit about how business has been so far in the month of April?

The business in the month of April has continued to be very good. Bookings are very strong. April should be up well over the prior quarter so there are really no issues.

We’ll take our next question from Simona Jankowski - Goldman Sachs.

With Europe being up 19% for you in the quarter, is that just seasonality or are you starting to see some of the effects from signing some regional distributors there in the last couple of years?

It’s a combination of effects. Europe is seasonally a strong quarter. You know, the March quarter, because the March quarter tends to have no holidays. The other quarters have either Easter or Summer or Christmas or some other holidays. Seasonally it’s a strong quarter but the results in Europe are absolutely tremendous. They go far beyond really what the seasonality would imply. There are significant share gains resulting from our efforts in the channel, adding regional distributors and design houses. A lot of it is adding a large number of our own people who are creating demand. In fact, a bunch of that demand is getting satisfied through the global distributors. Albeit at a slightly lower margin - our global distributors were up 9.3% sequentially, significantly more than Microchip was up in total. The total global distribution issue that has been around for a while in the minds of investors and analysts should really be put to bed here.

Just one more question on the manufacturing side. I think I had initially expected less upside in your gross margins while you were reducing your internal inventories, but it turns out your inventories came down more than you had expected while margin was up more than you expected and it seems like guidance is similar for the June quarter. I just wanted to get a sense of what turned out better than you had thought in the quarter?

I think gross margins were fairly close to what we had guided. Many of the factors in our gross margin continue to be positive. We see depreciation as a percent of revenues continuing to help us to drive gross margin. We see favorable product mix from this current quarter with microcontrollers being a larger component of our business. As we look forward, those will continue to be factors and as we start to increase the activity levels in our business, both in wafer fab and in assembly and test, over time, as those costs begin to represent themselves in subsequent quarters, that will help us to continue to move towards the 62% goal. What was really very important for us was that these revenue levels that both inventory on our balance sheet and in distribution declined showing that we are very well balanced and very well positioned to be able to take advantage of the conditions in FY2008.

Our next question comes from Michael Masdea - Credit Suisse.

When you talk about hitting the bottom and going into an upturn, one thing that you typically hope for is underlying demand growth is starting to accelerate, as opposed to just inventory ending. It seems to me maybe that’s more like the latter in this case. Let me know – are you seeing something different, or any sort of acceleration from an actual demand perspective rather than just a supply chain perspective?

I don’t really know how to decipher it. We believe for our business, most of the inventory correction was over in the December quarter as we said before and we actually guided the March quarter to be flat and we actually beat that by 2.9%. The March quarter itself represented some of the growth from various initiatives we have had and new product lines, fixed in that and others under the demand creation efforts. Our June quarter is heading into another strong quarter, partially seasonally and partially continuing to be as a result of those efforts. I do not consider that June quarter guidance to be a bounce up from a depressed March quarter which had a substantial inventory correction. March quarter was actually up. If you compare our results from many of the others we have announced that the results for March quarter were down 7-8%, whatever those numbers were, and they were guiding significantly up for the June quarters. Those results would have the inflection coming from a depressed level to a bounce. Our numbers do not show that.

That makes sense. As a follow up, can you give us a sense of your growth you’re seeing right now? What percentage or what piece of it is really coming from what you think is market share gains and going into new markets versus underlying demand and to that end, what do we look for beyond 16-bit and analog. Is there other things we should start to think about for your future?

Michael, we cannot separate the business that we won – whether that given design win that we won is a new demand or market share regained. It’s really one and the same thing. There are customers, new designs come up. Maybe in the prior model they were using somebody else – now they’re using us and that’s a gain of market share. Another guess is the product goes into a brand new application where maybe something else was used. It’s really, with 55,000-60,000 customers we have worldwide, that’s a very, very difficult question to answer. Therefore, our focus really is to continuously build feature-rich products and really market them with one of the best sales system in the industry that really creates demand and continuously focuses on winning every design out there. Sometimes that design is a brand new design. Other times – or most times – the designs are what were previously our competitors designs, so it’s a combination. The other thing you can do is look at how fast the underlying markets are growing. When you look at the underlying markets, how fast 8-bit is growing or 16-bit is growing, or analog is growing, those numbers are available to you from other industry sources and I think the markets have been relatively flat. You know, there is not a strong growth. That would really highlight that much of our success is coming from producing superior products and superior selling efforts and hence a large portion of that is really market share gain.

Our next question is from Chris Danely - JP Morgan.

Steve, can you give us a sense of what sort of time amount or revenue level it would take to get to your target gross margin? Do you have any target operating margins out there you want to throw out?

Giving you a specific number is difficult. We still see in the next one to two years getting to the 62% range in terms of our guidance. This is on a non-GAAP basis just to make sure we’re speaking from the same currency perspective. As you go further out in time, many of the factors become more difficult to predict. Whether that is product mix or utilization factors or market conditions, we’re always continuing to look for ways where we can grow the business profitably and ensure we can continue to gain market share and drive our top line growth. There’s a complementary aspect to that, Chris, that we think is very important. We are still comfortable with the range over the next one to two years to get to the 62% level.

The follow up is are you guys seeing anything new or more competitive from the competition, especially now that say Freescale has gone private and seems to be focusing on microcontrollers more?

When is it that they weren’t focusing on microcontrollers! I think we heard that in several different reincarnations when they were rolled out and separated and private and public and back private now. I think you have to separate some facts from rumors and speculations here. Let’s take a look at some of the facts. The VP of Distribution they hired from Microchip a couple of years ago is no longer there. It’s also a fact that his replacement now reports at a lower level in the organization. It’s also a fact that Microchip’s demand creation model has been very successful. I have spoken about it quite a bit already. The rest are rumors and speculations. Why did he leave and what will they do with their program and will they focus on microcontrollers or not – we don’t really care. You’ve seen us over time. We focus our resources on our channel partners and our strategies. We’re several steps ahead, usually, and we focus on our own moves rather than the moves of the competition. I don’t really know what they might or might not do.

Our next question is from Gil Alexandria – Darfill Associates(?).

Could you give us some color on your tax rate going down to 20% and will that tax rate hold beyond the next year?

As we said in the conference call here and the press release, we have settled a number of years of tax audits related to the change in the $52 million, which is a favorable P&L perspective. Much of this is related to the complex nature of a tax structure of a company like Microchip. We are an international organization with many tax boundaries that we need to deal with and many taxing authorities that again we need to be responsive to. Certainly, as we look forward, provided there are no substantive changes from a tax basis in the main jurisdictions that we are in, we believe that 20% is sustainable.

We’ll take our next question from Chris Caso - Friedman, Billings, Ramsey.

I wonder if you could talk a bit with respect to capacity? You talked a bit about the capex goals for this year. Where do you sit right now in terms of the Gresham utilization rate? Is that something you need to think about in the future in terms of doing some further capacity expansion as we’re looking into the potential upturn here?

There are really no capacity issues short term or even slightly longer term. We have shown slides that we have an installed capacity of $1.4 billion between our two fabs. From the run rate we are running at today, that is substantial head room and we have, in addition, significant clean room space available in the Gresham fab to get another $300 million more than that. We have a capacity all the way up to $1.7 billion and a portion of our output is coming from foundries where we outsource production. Over the next few years, that gives us another couple of hundred million dollars of revenue. We think we have capacity to get to $2 billion, which is substantial headroom, before we have to worry about getting to any kind of capacity issues. Similarly, we have capacity in assembly and test. Now, you know, there’s an ongoing requirement of some equipment – certainly in assembly and test and some in fab – because when we brought the Gresham fab it was not a 100% equipment match to what we needed. As we ongoing increase our production, we have to add certain equipment as we go. That represents the $80 million forecast we have just given you. A portion of that is what we pushed out from FY2007 into FY2008 when the inventory correction hit at the end of the December quarter we basically pushed out several million dollars of capital into this quarter. So you can see that almost at a maintenance level capital of about $80 million or so, we have significant head room in capacity.

As a follow up, I’m sure you guys saw what Linear Technology decided to do a week ago. There are some other companies in the space that seem to be having a different attitude towards capital structure and taking on debt with part of that being a buyback stock. Obviously you guys are clearly focused on the dividend, but taking a look at what someone like Linear decided to do, would that be something that you guys would entertain? Have you looked at any change to the capital structure such as that?

You have to being with caring about the shareholders and being shareholder friendly. We have been told by investors and analysts over time that we have been one of the most shareholder-friendly semiconductor companies, largely through a very strong dividend program. We were the first ones to start paying significant dividends and we’re now really one of the highest dividend-paying companies in the industry. Your question really is whether we’ll go to the next step and buy a large portion of the company back, together with a convert transaction like Linear did. We are continuing to review such alternatives, but we really have not made any decisions yet.

But you’d be open to a transaction if it made sense to you guys?

We always look at all available alternatives. In general, we are not fans of financial engineering – we’d rather focus on product development and selling and growing our business. However, we constantly look at all available options for shareholder value and this is really no different.

Operator instructions. Next we’ll hear from Ian Eigenbrot(?) with Bank of America.

It’s Sumit Dhanda. Hi guys, congratulations on another solid quarter. I had a couple of questions, Steve or Ganesh, it seems like consistently your flash point controller business outpaces the rest of the 8-bit controller category. Now it’s two thirds of the business. As we are thinking about the long-term growth for the 8-bit category, this continues to be a bigger and bigger part of the mix. Do we really think about the overall growth rates for the category moving higher, or as the 8-bit flash controllers get more mainstream, the growth rate starts to taper off?

If you’re talking about the 8-bit market overall, if you’ve noticed over the last several years, you know, that’s been a steady, relatively flat market. What has been growing inside the 8-bit market is the flash and programmable and reprogrammable portions of that market. The story behind our growth has been riding the programmable market share and then with flash the reprogrammable market share. We expect that there is still lots of growth left as more and more of the overall 8-bit market becomes programmable or reprogrammable in its nature.

I understand that, but my question was inherently it seems like the flash based markets are getting higher growth rates. Do you think that growth rate ultimately comes down or do you think your overall microcontroller category migrates to that higher growth rate which you have had in the flash category?

Both. I think a year ago, the programmable market was about 40% of the total 8-bit microcontroller. I believe numbers this year are about 45% or so. As that flash market becomes a larger and larger portion of the overall market, definitely its growth rates will come down. At the same time, as that becomes a larger portion of Microchip’s business and growing at a faster rate, our growth rates will accelerate. I think the answer is yes to both of them. Somewhere in the middle.

The follow up I had was that Steve, you mentioned that the relationship with Arrow has ‘Normalized’. Can you just expand what you meant by that?

I think I would look at the larger issue first. The entire worldwide Microchip sales and applications team really has one simple mission, that they execute on a daily basis. That mission is really drive design wins to revenue. We put that as a singular focus and we don’t really focus on the commercial aspect of where the customers want to buy the product. Whether the customer buys the product from Microchip, from a distributor, from the Microchip website or any other way, we think it’s completely in the hands of the customer. We don’t direct the business one way or the other. With a totally non-commissioned sales force, which is unique in our industry, there is no corporate or individual incentive to direct the placement of that business in any particular manner or to any particular channel. Globally, we are dedicated to winning designs and beyond that, we’re channel neutral in terms of where the customer wants to buy the product. Our distribution business five years ago was about 65% of our business. Now our distribution business is about 65% of the business. A lot of the stories and rumors you hear about Microchip is this and that about distribution is just not correct. All we are dong is taking more direct control of our demand creation and a large amount of that business continues to go through distribution because they’re in the field. They carry inventory. The customer can quickly buy the product. They provide additional services like (cladding and canban?) and programming and others. Despite the changes that we have made in the global distributors, our distribution business continues to grow and I mentioned earlier, our global distribution business was up sequentially quite a bit. Now coming down to your specific question, which is really about Arrow. With the resources that Microchip has added and the record demand that we are creating for our product, a lot of this demand is being served through Arrow. Business at Arrow is not falling off the log at all. Our business at Arrow is actually growing. In the March quarter we just completed and we are announcing today, our net sales through the Arrow channel were up 5.4% sequentially – more than the sequential growth of Microchip in total. Therefore the relationship itself with Arrow is normalizing. They’re benefiting, we’re benefiting and our demand creation efforts are really positive for both.

We’ll take our next question from Louis Gerhardy – Morgan Stanley. John Arne(?): This is John Arne calling in for Louis Gerhardy. Congratulations on a great quarter and congratulations on an equally good outlook. My question actually has to do with expectations for the next quarter. Do you have a turns booking target that you have to hit your goal?

Yes. The turns target is just a calculation based on the guidance we gave you minus the backlog we started at. We do not have that number here but I did mention in my commentary that the starting backlog for the quarter was higher than it was for the March quarter, so it’s a calculation but we don’t have that number nor do we give it out.

It’s more of a subjective element, certainly with distribution having a tremendous focus on working capital and we have seen inventory come down. Often the backlog and the revenue or the product shipped to distribution isn’t indicative of what the point of sale results of that would be also. We look at all those factors in terms of determining what our revenue guidance is and where we think inventories are going to settle on our balance sheet also? John Arne(?): As a follow up to that, is there a historical turns bookings rate that you’ve had in the past? To give me a better indication?

Over the business cycles the turns required have ranged between 25-75%. I know that doesn’t help you, and we have shown over and over when we used to give the turns required years ago that it does not correlate in our business. It absolutely does not. 90% of our business is proprietary products. The only person you’re competing with is yourself. The customer designed in your product, they can’t buy from anybody else. They’re going to buy from you or one of the channel partners. Therefore whether that business was booked on March 25 for deliver into May, or whether it was booked on April 5 for delivery in to May, it doesn’t really matter. So starting backlog, book to bill, those things have not been meaningful indicators in our business. If you had been a long-term Microchip investor, you would know that I have made that comment hundreds of times and I have shown many, many times, including the quarter we just completed, with a 0.97 book to bill ratio in December. We were up 3% sequentially. Now with a 0.97 book to bill ratio we have a substantially higher turns requirement for March than we had in the December quarter. Yet we beat the number. If we had given you that number in January, there would be a lot of concern. It simply raises volatility and raises concerns and the indicator is not valid.

We’ll take our next question from Jeff Rosenberg - William Blair & Company.

Just real quick, I wanted to ask could you tell us what your market share is in the 8-bit market according to Dataquest?

I think Dataquest, the numbers that came out…

It’s between 15-16% as measured by revenue. I think we can get you an exact number if you want?

No, that’s helpful.

We’ll take our next question from Joseph Osha - Merrill Lynch.

Following on from the previous question, is there some point at which you think looking at the TAM that it becomes harder to gain share? 30%? 50%? When you think about this, is there any sort of theoretical limits as to how big you can get in this market?

There probably is far out in time. At the moment, we see no real limitations to growth. At 15-16%, that’s 84-85% of the market that is still left for us. As we continue year after year, we find that we’re able to find that growth. I think a lot of that comes because the reprogrammable segment is growing a lot faster than the overall 8-bit market. That’s where we play the largest and that is the portion of 8-bit that’s growing the fastest.

So when you thought about it, you haven’t said ‘Okay once we hit 30%’ – obviously that’s a long way from now, but there isn’t sort of a number that you look at and say ‘All right, we can’t get past it’?

In any competitive market with a number of players, it’s not unusual to see the largest player has a 30% plus market. Xilinx has it, Altera have it. TI has it in DSPs. You can look at a number of different markets for people in the DRAM or flash business. Market leader – if you looked last year at our growth versus the number two player, the difference was 27%. Our growth versus – our plus double digits and their negative double digits. With those kinds of market share gains, I think we can continue to grow. Is there a top number somewhere? It’s way out there that we don’t really worry about it right now. While we approach that number, we think our 16-bit product line and analog product line are rapidly coming where over time they become larger and sizeable where they pick up the slack.

Sure. That 35% number seems reasonable if you look at other markets. In the 16-bit market, is the competitive environment at all different? As I look at the competitors, it seems to be the same bunch of guys. Has it been different at all?

I think it’s very much the same set of competitors. There are some who don’t play in 16-bit, they only play in 8-bit and then they are on to 32-bit. Many of them, if you look at the numbers – two, three, four on 8-bit, they are the same or in that same group of top 16-bit players.

Sounds great. Please don’t do a convert!

Next we’ll hear from Uchay Urji(?) – UBS. Uchay Urji(?): Just for Steve, if I look at your exposures to the consumer market, at the moment it looks like the global growth is offsetting the weakness in the US. Do you potentially think this could be a problem in the future if the US consumer remains low?

Our business is global. We sell in every country in the world where it’s legally allowed to sell. 75% of our business is outside the United States. With so much focus on the US consumer, it doesn’t really directly correlate to our business. Last quarter, 33% roughly of our business is in Europe so a third of our business is in Europe. A third of the business is in Europe, and while the US is about 25%, some of the business which is in Asia comes back to the US through multinationals and others. If you adjust for that, our best guess is our business is one third in Europe, a third in the US and a third in Asia. We participate everywhere. There is very strong growth in Europe going on right now. Germany and the UK and a lot of other countries are doing extremely well. All the sowing of China gloom and doom scenarios have not come true. Our business continues to do very well in all those geographies. People always talk about the US slowing down. I have heard of that forever and we seem to be more than making up for it to other geographies as well as superior market share gains.

It’s also the content story. It’s true in our consumer products, just as it is in other markets. Just the number of microcontroller opportunities and white goods, small appliances, audio, video, other key markets that we look to continue to also give us a much more positive view of those rather than looking at GDP factors. Uchay Urji(?): Just another question, if I look at your opex sales, it seems to indicate your opex keeps growing marginally faster than revenue. I assume that’s because of your investment in your direct sales force? At what point does that stabilize and when should we start to expect to see some type of leverage on the opex line?

I don’t think that assessment is correct, unless you’re looking at non-GAAP to GAAP.

Or longer-term perhaps.

Number one, if you just look at the GAAP numbers, they have option expensing. If you look at the numbers a year or two years ago, they were not. It will show that expenses have increased. If you look at non-GAAP to non-GAAP, the long-term guidance we have been giving for a long time is 24-25%. We are seeing longer term in our model – we said it is 25%. We leave some headroom, 50bps to the average. If you need some investments or something it could be closer to 25. Sometimes it could be closer to 24. Last quarter was 24.52, non-GAAP, right in the middle.

We will continue to invest in new products and a design creation model. It’s critical for our business that we deploy those to get the results on the top line that are important.

I think for the entire period of three or four years, we have been making investments in sales and applications to tune up our demand creation model. I do not believe that it has happened at the expense of higher operating expenses. Uchay Urji(?): If I look at your outstanding buyback, you say there are 1.5 million shares to be bought back that are left in the program. In terms of the choice you make between dividend and buyback, what’s right in those choices then? Should we expect that this program could be renewed or increased? This business keeps generating a lot of cash and well done on that anyway.

Our choice between dividend and stock buyback is unquestionably dividend and has been for a long time. We have stated many time before that the only time we like a significant buyback is when the market throws out the baby with the bathwater, where the story is not understood and we think the stock price is unreasonably depressed because of some concerns in the market which we have not been able to rectify. The last opportunity we had like that was in 2003 during the SARS crisis in Asia. Since then, we have really not bought stock. Since we announced this large buyback a couple of quarters ago, we have not bought a single share.

Just to clarify what is available, we had a 2.5 million share buyback authorized back in 2004 and there is about 1.5 million of that still available. Then in October of 2006, there was an additional 10 million share buyback. Effectively we have 11.5 million shares available to us in terms of the buyback.

We have a follow up question from Chris Danely with JP Morgan.

Steve, I think you mentioned earlier that you expected a couple of hundred million bucks of outsourced products in three or four years? Is that true, and can you give us a sense of how much of your products are going through foundry now?

Right now I think the foundry business is about 3.5% of our revenue roughly. We have said over five years it could be 10% of our revenue.

That still holds true?

What do you mean does it still hold true?

So according to that it’s a couple of hundred million bucks – that’s the way you got to that number?

Don’t walk me into a forecast! These are bilateral extrapolations. We are developing some products at foundries, we have some business plans where it needs unique processes which we do not have inside and there are reasons to develop them outside rather than spend the money inside. You know – there are a lot of different reasons. Whether it goes to 8, 10 or 12 five years out, you know, don’t pin me down on that.

Last question – as we look at the rest of the year, how do you expect relative growth rates between E-Squared versus analog versus microcontrollers?

That’s tough to call. Do you have anything?

I think for microcontrollers overall, I think analog will be the fastest growing of the three lines. The 16-bit portion of our microcontrollers will be obviously growing even faster than analog, but overall microcontrollers are probably a little lower than what analog is. On E-Squared, we are really not trying to drive growth in it as much as to have it as a complementary product line and it will grow as a natural part of us growing the microcontroller analog products.

At this time we appear to have no further questions coming in, gentlemen. Is there anything further you wanted to add?

No, we just want to thank everyone for participating and we’ll see you at a conference soon.

That does conclude our conference. Thank you all for your participation. We hope you enjoy the rest of your day.